Will cloud computing obsolete SaaS?

A few weeks ago I started writing about cloud computing and its various iterations. I continue to get a lot of direct email regarding my views on whether it’s all hype and marketing or is it truly the future of computing?

It’s actually a deep technology and business model question so I thought I’d seek out a bit of expert opinion on the matter with the gravitas and experience to give thoughtful opinions.

SugarCRM is the one of the best customer relationship management SaaS providers (DISCLOSURE: I was a customer and user of SugarCRM) and is particularly interesting because it follows open source development model. SugarCRM works very well using a cloud infrastructure such as Amazon but it also works in a “private cloud” meaning running SugarCRM in a corporate data center environment

Augustin is an angel investor and advisor to early stage technology companies, he currently serves on the Boards of Directors of Fonality, Hyperic, Medsphere, OSDL, Pentaho, SugarCRM, VA Software (NASDAQ: LNUX), and XenSource. Worth Magazine named him to their list of the Top 50 CEOs in 2000.

I asked Larry a few questions:

YB: Is there a future for corporate data center-centric applications? Or is the writing really on the wall?

LA: The corporate data center is not going away. Just as the outsourcing trend of the 80’s never led to IT functions being completely outsourced, most companies will choose to deploy and manage at least some of their applications on their own data centers, what we call private clouds. SaaS is a lot like outsourcing. Some functions make sense to outsource, others not. Outsourcing has been very successfully employed to give companies flexibility around resources while maintaining mission critical and strategic functions in-house. Data ownership, control, customization, integration with core systems are the big drivers for private clouds. At a macro level, privacy issues, industry and government mandates will ensure that in-house applications will exist for a long time.

YB: Salesforce started the SaaS cloud computing with sales management, then Netsuite for small business systems, SugarCRM in CRM… Ok what are the next areas of opportunity for SaaS?

LA: Cloud computing is obsoleting SaaS as defined by SalesForce, NetSuite and similar single-vendor solutions. The distinction between SaaS and cloud computing is an important one.

Cloud computing gives companies the ability to scale out computing resources on-demand. Rather than building data centers that can serve peak capacity for all of their applications, they can instead build data centers (private clouds) that serve the typical capacity of their mission-critical applications and then overflow to external clouds as necessary.

But to support this, applications must understand the cloud computing model and be able to scale across internal (private) and external clouds.

The next big opportunity is around interoperability and portability across the many cloud services out there (Amazon, Google, Rackspace, etc.) so customers can consume services without fear of lock-in and the high costs of being dependent on one vendor. This is where legacy multi-tenant SaaS applications like SalesForce begin to fail. They run in only the vendor’s data centers, not across public and private clouds. They are unable to take advantage of cloud computing.

You can see this with efforts like the Open Cloud Manifesto which has been endorsed by Cisco, IBM and EMC and the announcement of the Simple Cloud API this week by Zend, Microsoft and IBM. SugarCRM, for example, has working with SugarCRM partners to take the core building blocks of our application and create brand new applications that run anytime, anywhere in the cloud.

YB: How does open source SugarCRM work in a SaaS world? Doesn’t open source expose your business model to potential competitors?

LA: Open Source business models have always faced this question, and have always proven resilient in the face of competition. Customers want open. When you are on the Cloud, most services are powered by open source software. Beginning with operating systems (Linux) and web servers (Apache), open source has quietly colonized the Internet.

This happened because open source allows companies to acquire, modify and redistribute software at a fraction of the cost of proprietary software. As a result applications like SugarCRM spread at a rate that dwarfs proprietary applications.

As the original developers of SugarCRM we are best positioned to offer support, services and enfacements to our open source offering. The more open source users we have, the bigger our market opportunity. Last quarter alone we saw over 90,000 new installs of our software. Those numbers are huge, and dwarf any SaaS vendor.

I would not want to be a SaaS provider trying to run a SaaS environment and deliver an application based on proprietary software. Imagine the cost and resources to build out cloud infrastructure to compete with the likes of Amazon, Google and Microsoft while also investing the resources to build out a proprietary application.

At SugarCRM we focus on building a high-quality, open application that is cloud-ready and can run on any of those cloud vendors. Without Open Source we could never have achieved the scale or reach that we have today. In total, we estimate that we have over 550,000 users of our software. Those numbers dwarf any SaaS vendor.